Durga Das Uppal vs Union Of India And Ors.
1989 Latest Caselaw 301 Del

ORDER--Purchase of property under sale agreement and part of sale consideration paid--Appropriate authority, however, passed an order for purchase of property by Central Govt at apparent consideration--Writ thereagainst by purchaser--Interim order passed

Income Tax Act 1961 s.145

JUDGMENT

D.P. Wadhwa, J.

(1) By this order we propose to dispose of twoapplications, one by the petitioner (CM 5297/88) and the second by the 4threspondent (CM 5535/88).

(2) The petitioner filed the writ petition challenging the order of the appropriate authority dated 7.11.1988 made under sub-section (1) or Section 269UD of the Income Tax Act 1961 (for short 'the Act'). The appropriate authority is constituted under S. 269 Ub of the Act. By this order the appropriate authority held that the property in question was fit for purchase by the Central Government. The property is a plot of land bearingNo. 22, situated at Road No. 61, punjabi Bagh, New Delhi, and measures552.78 sq. yds. The petitioner as purchaser and the 4th respondent as the seller entered into an agreement for transfer of this property for a consideration of Rs. 28,19,178.00 and the purchaser at that time paid a sum of Rs. 10 lakhs to the 4th respondent. A statement of transfer of immovable property as required under Sec. 269UC was filed before the appropriate authority, in Form 37-1 as perscribed, which on examination of the same came to the conclusion that the property be purchased by the Central Government at an amount equivalent to the amount of 'apparent consideration' which was the consideration for which the 4th respondent agreed to sell the property to the petitioner. This order is under challenge in the Act writ petition. The petitioner has prayed that Chap. Xxc of the containing Ss. 269U to 269 Uo be declared unconstitutional and that respondents Nos. 1, 2 and 3 be restrained from taking any action in terms of the order passed under S. 269UD(1) of the Act by the appropriate authority. These are four respondents. The first is the Central Government,second is the appropriate authority and the third is the Central Board of Direct Taxes. The 4th respondent, as noted above, is the owner of the property in question.

(3) When the writ petition came up for admission. Rule D.B., was issued and by way of interim order it was directed that respondents Nos. 1to 3 would not pay the consideration till further orders and status quo was also directed to be maintained. This was on the application of the petitioner. Then the 4th respondent also filed an application. He praye d for modification of the interim orders and stated that he was prepared to sell the property either to the Central Government or to the petitioner in terms of the agreement to sell dated 10.9.1988 which he had entered into with the petitioner and on receipt by him of the balance of the sale consideration.In the alternative, he also prayed that the petitioner be directed to pay interest at the rate of 24% per annum on the balance of the consideration if he is not directed to be paid the balance of the sale consideration.

(4) It may be noted that a number of writ petitions challenging the constitutional validity of Chap. Xxc of the Act are pending in this court and in those writ petitions various interim orders have been passed depending upon the facts and circumstances of each case. These orders were brought to our notice during the course of arguments on the present two applications. Normally, directions have been issued:-

(1)staying the operation of the order of the appropriate authority under S. 269UD(1) of the Act;

(2)requiring the income-tax authorities not to pay either to the seller or the purchaser the amount of the purchase price of the property until further orders;

(3)in consequence thereof, directing that provisions regarding limitation as contained in S. 269 Ug and 269UH shall not operate against the Income Tax Department; and

(4)restraining the purchaser and the seller from putting up any construction on the property or from transferring, alienating or parting with possession of the same or from creating any encumbrance on the property during the pendency of the writpetition. In one such case, i( was also observed that the question of payment of interest to the seller was left open and that issue would be decided at the time of the disposal of the writ petition.Yet in another case. it appears that the seller was paid certain further sum where the possession had passed to the buyer and thecourt, while restraining the buyer from making any construction on the property etc., had permitted him to get the property whitewashed. plastered etc. at his own risk and responsibility. The Department was, however, given right to inspect property after giving notice to the petitioner, the purchaser.

(5) Mr. Harbans Lal, appearing for the seller, submitted that he was not a necessary party in these proceedings as he did not challenge the impugned order of the appropriate authority. He said the seller was not interested either way and he was only interested in getting his balance saleconsideration and to execute the sale deed. It was submitted that though the question of payment of interest was considered in some of the interim orders referred to earlier, the question about the liability of the seller to Capital gains tax or wealth tax was not taken into consideration. Mr.Harbans Lal said that the seller could be saddled with the liability of Capital gains tax or in any case he would be subjected to wealth tax. He said the seller had purchased the plot in question for a total consideration of Rs.4007.66 while he was selling the same for an amount of over Rs. 28 lakhs.Because of these consideration it was submitted that the order for payment of interest at the time of disposal of the writ petition would not be just. He said where the question of payment of interest was considered the property was built up and either the sale or the purchaser was in enjoyment of theseme. That would not be the case here as the subject property is a plot of land. Counsel appearing for the petitioner and the Department were not quite sure about the applicability of the provisions of the Capital Gains under the Act and the Wealth Tax Act and rightly so as those are the questions which would be determined by the Income Tax Authorities at appropriate time.

(6) A look at certain provisions of Cap. Xxc of the Act in so faras those are relevant to the present controversy would be quite appropriate at this stage. Under S. 269UA(f), 'transfer' means transfer of property byway of sale or exchange or lease for a term of not less than twelve years and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in S. 53A of the Transfer of Property Act 1982. Before effecting transfer of any immovable property, both the transferor and the transferee have to enter into an agreement for transfer, which is to be in writing, at least three months before the intended date of transfer and then a statement in the form prescribed is to be furnished to the appropriate authority, (S 279UC). under. 269UD. appropriate authority may make an order for the purchase by the Central Government of such immovable property at the amount for which the property was agreed to be sold called the 'apparent consrderation'. A copy of such order is to be served on the transferor, the transferee and the person in occupation of the immovable property or on any other interestedperson. When such an order under S. 269UD is made the immovable property shall, on the date of such order, vest in the Central Government free from all encumbrances but this does not operate to discharge the transferor from liability in respect of any encumbrances on the property and that can be enforced against him, (S. 269UE). On the making of the order under S. 569UD, the Central Government shall pay by way of consideration for such purchase, an amount equal to the amount of 'apparent consideration (S. 269UF). This amount is to be paid by the Central Government within a period of one month from the end of the month in which the property becomes vested in the Central Government, (S. 269UG). On the failure on the part of the Central Government to make the payment within the period specified, the order passed under S. 269UD shall stand abrogated and the immovable property shall stand re-vested in the transferor after the expiry of that period. (S 269 UH). Then, there are provisions inched Xxc putting restrictions on the revocation or alteration of the agreement for transfer of the property, restrictions on registration, etc. and immunity to transferor against claims of the transferee for transfer. under. 269UN, the order of the appropriate authority passed under S 269UD is final and conclusive.

(7) 'TRANSFER' under S. 2(47) in relation to a capital asset, includes,- "(I)the sale, exchange or relinquishment of the asset; or(ii) the extinguishment of any rights therein; or(Hi) the compulsory acquisition thereof under any law; or(iv) ..

Under S. 45 of the Act any profits or gain arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Ss. 43, 54, 54B, 54D, 54E and 54F, be chargeable to income-tax under thehead, 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. As the law stands today, it may be possible for the seller to arrange his affairs in such a way that no capital gain arises from the transfer of a capital asset. Under S. 2(e) of the Wealth TaxAct, 1957. "assets" includes property of every description, movable orimmovable, and then there are certain exceptions. "Transfer" as defined inS. 269 UA(f) would appear to be applicable for the purpose of Chap. XXCalso.

(8) In Pandit Lakshmi Kant Jha v. Commissioner of Wealth tax(1973) 90 1. T, R. 97), one of the questions before the Supreme Court was whether any part of the amount fixed as compensation payable to the assessed under the Bihar Land Reforms Act, 1950 was liable for inclusion in the total wealth of the assessed. The contention raised was that the compensation payable under that Act did not constitute an asset as could be taken into account in computing the total wealth of the assessed. Perusal of the different provisions of the Act showed that as soon as the estate or tenure of A proprietor or a tenure holder vested in the State, he became entitled to receive compensation and the fact that the payment of compensation in terms of the provisions of the said Act might be deferred and be spread over a number of years did not affect the right of the proprietor or tenure holder to the compensation. The Supreme Court, therefore, was of the view that the assessed was vested with a right to get compensation immediately his land was vested in the State. It thus held that the definition of the 'assets'as given S. 2(e) of the Wealth Tax Act, though not exhaustive, showed its wide amplitude and there was no reason as to why the right to receive the compensation could not be included amongst the assets of the assessed. In Commissioner of Income Tax, West Bengal Ii v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 I.T.R. 524), the Supreme Court observed that there was a clear distinction between cases where the right to receive payment was in dispute and it was not a question of merely quantifying the amount to be received, and cases where the right to receive payment was admitted and the quantification only of the amount payable was left to be determined in accordance with settled or accepted principles, to this case certain land of the assessed was first requisitioned and then compulsorily acquired by the State Government. The Land Acquisition Officer awarded a certain amount as compensation, which was enhanced by the arbitrator.The Supreme Court was considering if the enhanced amount of compensation could be taxed as the income of the assessed for a particular assessmentyear.

(9) Considering the facts of the present case and the aforesaid provisions of law, the seller has raised important questions requiring immediate determination, particularly when it cannot be said as to when the writ petition would itself be disposed of. In fact, we have been told that the Supreme Court is seized of the matter and various writ petitions pending in this court are awaiting the decision of the Supreme Court though, as notedabove, it was submitted that the seller might not be subjected to either capital gains tax or the wealth tax. but nobody is quite sure about the exactposition. We do not want to say anything on the subject as the matter will have to be dealt by the income-tax and wealth-tax authorities under the provisions of the law but then the seller may be involved in legal battles with the Income Tax Department which are not of his making It is the transferee, the petitioner, who has come to this court seeking stay of the operation of the order passed under S. 269UD of the Act by the appropriate authority. He has challenged the constitutional validity of Chap. Xxc of the Act, and on that account further action by the Central Government has been stayed. The seller is not challenging the order of the appropriate authority. If the purchaser, the petitioner, succeeds the seller has only to execute the sale deed and get it registered after receiving the balance of the sale consideration. At the moment, the petitioners action has deprived him of the balance sale consideration. The Central Government is sitting tight as it need not make any payment in view of the interim orders and it also cannot get possession of the property because of the said interim orders.The seller is prepared to pass over the possession to anyone. It was submitted by Mr. D.K. Jain, learned counsel for the Income Tax Department, that the property was to be reauctioned as bad been done in the cases of numerous other properties which had vested in the Central Government under the provisions of Chap. Xxc of the Act.

(10) In the circumstances of the present case, we are of the opinion that we should direct the petitioner to make payment of balance of the sale consideration to the transferor, the 4th respondent, subject to certain terms and conditions and further orders of the court. In that case, if the petitioner succeeds in the writ petition nothing more is required except for the seller to execute and register the sale deed. If, however, the petitioner fails, he can be compensated with interest by the Central Government. It is a matter of common knowledge that there is always appreciation in prices of immovable properties and in fact, in Delhi there has been astronomical rise in prices of land in the recent past.

(11) . We, therefore, direct as under-

(I)The balance sale consideration amounting to Rs. 18,19,178.00and any other amount as may be due to the seller, shall be paid by the petitioner to the seller, the 4th respondent, within two months from today;

(II)The 4th respondent shall invest the amount of the sale consideration liable to capital gains tax under Ss. 54D; 54B, or 54F of the Act as the case may be or any other capital gains tax avoidance scheme and shall not be entitled to use that money during the pendency of the writ petition or without further orders of the court and he shall file an undertaking to that effect within two weeks with the Registrar of this court. In theevent, the petitioner succeeds in the writ petition, the 4threspondent shall execute the sale deed and get it registered in terms of the agreement for transfer between the parties.

(III)In case the petitioner commits default in making payment of the balance consideration as aforesaid, the interim orders made earlier shall stand vacated and necessary consequences as contained in Chap. Xxc of the Act shall follow as from the date when the stay stands vacated.

(IV)The property in question shall be in custodia legis and the concerned Commissioner of Income Tax is appointed Receiver of the same. Tins is necessary in order to preserve the property so that there are no squatters or unauthorised occupants. The4th respondent shall file an undertaking to that effect with the Registrar of this court that there are presently no such squatters or unauthorised occupants. The property shall be secured by fixing barbed wire fencing all around by the IncomeTax Department and the costs so incurred by it shall be subject to the orders of this court at the time of the decision of the writ petition.

(V)On petitioner failing in the writ petition, the Central Government shall pay to the petitioner the amount of the 'apparentconsideration' and also interest thereon at such rate and for such period as may be determined at the time of decision of the writ petition. This we are so directing as otherwise the Central Government would have to make payment of the 'apparentconsideration' to the purchaser.

(12) To the extent aforesaid, the interim orders made on 22.11.1988shall stand modified.

(13) CMS. No. 5297 and 5535 of 1988 stand disposed of.